4 ways wealthy families are trying to block higher property taxes under Biden


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With less than a week before the election, the phones are ringing for estate planning lawyers and accountants.

That’s because wealthy families fear an overhaul of the inheritance and gift tax exemption – the amount of assets they can transfer without a 40% levy – is imminent.

“For tax professionals, it’s like our Super Bowl,” said Alison Hutchinson, general manager of Brown Brothers Harriman in New York. “There are a lot of conversations with people who want everything to be set up and ready to go.”

In 2018, the Tax Cuts and Jobs Act roughly doubled the amount wealthy individuals could transfer over their lifetime or as part of a bequest without being subject to income tax. 40% estates or donations. In 2020, it stands at $ 11.58 million per person, or $ 23.16 million for a married couple.

But that provision is set to expire at the end of 2025, when it will drop to around $ 5 million per individual.

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A “blue wave” in Washington – that is, Democrats sweeping the White House and Senate, while maintaining a majority in the House – could hasten the demise of the inheritance and gift exemption.

Indeed, Democratic presidential candidate Joe Biden’s tax plan would reduce the amount people can pass on on death tax-free to $ 3.5 million and limit the amount individuals can transfer in gifts to $ 1 million. dollars, according to an analysis of the Tax Policy Center.

Gift and inheritance taxes could also reach 45%, the center found.

Biden also proposed removing the step-up in base, a tax code provision that allows heirs to receive valued assets on the date of death. In this case, an heir who sells the asset immediately would pay little or no capital gains on it.

Instead, Biden proposes to tax unrealized capital gains on death, according to the Center for Fiscal Policy.

Tax practitioners are walking a fine line: No one knows how the election will ultimately play out, so there is some reluctance to move millions of dollars with deals that might be hard to undo.

But that doesn’t mean high net worth clients have to sit still.

“You can’t say you won’t do anything until you know who won,” Keebler said. “This is not a 10 minute exercise in drafting a trust.

“Just like an architect who is building something that will last for hundreds of years, you have to think about it.”

Here’s how these wealthy families are strategizing now, unless they are doing massive asset transfers today.

1. Gather your crew

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It takes a village to write an estate plan.

Expect to consult with a lawyer, your CPA, and your financial advisor.

“Gather your team and make sure your advisors are on hand, in case you need to take action,” said Certified Financial Planner Mark Bradford, Senior Vice President and Wealth Manager at Bryn Mawr Trust Wealth Management in Bryn Mawr, PA.

Getting a date on the calendar is important even now, as these professionals could be in high demand after the election.

“I think if Biden wins I’m going to shut down my training for the next eight weeks and take care of what’s in the gate,” Keebler said. “There is a limit to the number of hours you can work on this stuff.”

2. Write your balance sheet

Giving or bequeathing property is not limited to a transfer of property.

Be prepared to work with your financial planner to prepare a balance sheet – a statement that details your assets and liabilities – then sketch out projections of what you’ll need to maintain your standard of living.

“Say you’re worth $ 40 million and determine that you need $ 18 million to live on,” Keebler said. “We can offer $ 22 million.”

If you are considering transferring a small business, now is the time to bring in an appraiser and get a feel for its value.

A company’s inaccurate valuations may not be accepted by the IRS and could affect your plans, Bryn Mawr’s Bradford said.

3. Calculate your cash flow for the rest of your life

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Project your cash flow needs with your financial advisor and make sure you have enough assets set aside to meet them.

Cash flow assumptions should also include retirement income from pensions, social security and other sources.

Also make sure you have enough aside for your tax bills.

Be aware that some trusts generate taxable income for the settlor during their lifetime, so there must be enough money to cover the cost.

“These taxes will go out of cash flow, and people might miss that out,” Keebler said.

4. Be intentional and flexible

Estate attorneys are working on the language of estate plans and revisiting old trusts, but not all are yet encouraging clients to transfer millions of dollars.

“Put your plan in place with the intention of being able to pivot regardless of what happens with tax laws,” said Pam Lucina, director of trust and head of fiduciary practice and advice at Northern Trust Wealth Management in Chicago.

Flexible provisions in the trust document could include the right to substitute trust assets so that a settlor can move investments that have greater appreciation potential, she said.

“The main thing is to put the structures in place now and make sure they have the maximum flexibility to be able to rotate no matter what happens,” Lucina said.

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